Essential Utilities' (WTRG) Arm to Buy Greenville Water System
Essential Utilities’ WTRG subsidiary, Aqua Pennsylvania, announced that it has entered into an agreement to acquire the water system in Greenville, PA, for $18 million. This acquisition will add nearly 3,000 new water customers to the company’s customer base. The deal is expected to close in the third quarter of 2024 after it receives all necessary approvals.
Earlier this year, Aqua Pennsylvania signed a deal with the Greenville water system to acquire Greenville’s wastewater system.
Timely repairs and maintenance of aging water and wastewater infrastructure are essential to providing high-quality services to customers. Even though the water infrastructure is not very old, Aqua Pennsylvania has plans to invest more than $10 million in the water system within the next 10 years to meet regulatory, environmental and cybersecurity demands.
Water Industry Needs Investments & Consolidation
The aging of water and wastewater infrastructure and delays in essential upgrades are concerns for the sewer service industry. Per the American Society of Civil Engineers, at present, nearly 50,000 water systems and 16,000 wastewater treatment systems in the United States are providing water solutions to customers. Small service provider operators have limited financial strength to carry out the essential, costly repairs on time, which leads to pipeline breakage and disruption of services and increases the possibility of contamination.
Fragmentation in the water and wastewater industry is a headwind. Large water utility companies continue to acquire small players to ensure the extension of high-quality services to customers and the investments required to upgrade old and acquired assets.
Per the U.S. Environmental Protection Agency, an estimated $744 billion investment is necessary to maintain and expand the drinking water and wastewater service to meet demand over the next 20 years.
Essential Utilities is also making acquisitions to expand its operations. Since 2015, it has expanded utility operations by completing many water and wastewater acquisitions, adding 129,000 customers. The seven acquisitions completed in 2023 added more than 11,000 customers. The company is yet to close five acquisition agreements, which, when completed, will add 211,000 equivalent retail customers or equivalent dwelling units with nearly $354 million in purchase price.
Essential Utilities plans to invest $1.1 billion annually in the 2023-2025 period to further strengthen its water and natural gas operations.
American Water Works AWK, through its subsidiaries, is making systematic acquisitions and taking essential steps to upgrade the old infrastructure of its acquired assets. AWK has added 7,100 customers till Jun 30, 2023, by acquiring five companies. The pending acquisitions (as of Jun 30, 2023), when completed, will add another 74,800 customers to its customer base. In addition, AWK has long-term investment plans to upgrade and expand its water infrastructure and serve customers efficiently.
California Water Service Group CWT is expanding operations through inorganic routes. In June 2023, California Water’s unit, New Mexico Water, received approval from the New Mexico Public Regulation Commission to acquire the assets of Monterey Water Company and provide regulated water utility service to Monterey’s customers.
California Water Service is expected to invest $360 million and $365 million in 2023 and 2024, respectively, to upgrade its infrastructure and efficiently serve its expanding customer base.
Price Performance
Over the past month, shares of WTRG have lost 7.2% compared with the industry’s 8% decline.
Image Source: Zacks Investment Research
Zacks Ranks & A Stock to Consider
Essential Utilities currently has a Zacks Rank #3 (Hold).
Another top-ranked company from the same industry is Consolidated Water CWCO, currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CWCO’s long-term (three- to five-year) earnings growth rate is pegged at 8%. The Zacks Consensus Estimate for 2023 earnings of $1.46 per share reflects an increase of nearly 49% over the past 60 days.
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